Foreign official purchases of U.S. treasuries and mortgage rates

ABSTRACT

This paper investigates the effects of foreign official purchases of U.S. treasuries on mortgage rates from January 1985 to June 2007 using a proxy structural vector autoregression (SVAR) model, where shocks to foreign official inflows to treasuries are identified by their correlation with foreign exchange interventions. Although mortgage rates significantly decrease in response to positive shocks to foreign official purchases of U.S. treasuries, these shocks only explain a small fraction of the variation in the U.S. mortgage rate.

KEYWORDS:

• Foreign official inflows
• mortgage rates
• proxy SVAR
• impulse responses

JEL CLASSIFICATION:

• E43
• E44
• F21

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ We also used foreign exchange interventions from countries like India and Brazil as proxy variables, but they did not sufficiently correlate with foreign official inflows into U.S. treasuries.

² SBIC information criteria suggests one lag. However, the results are robust to different lag-length choices.

Additional information

Funding

This research is supported by National Natural Science Foundation of China [71403227] and the Ministry of Education of China [16YJC790116].